Massachusetts Appellate Tax Board rejects Finnigan sales reallocation for P.L. 86-272 protected affiliate

On July 22, 2026, the Massachusetts Appellate Tax Board held that the Massachusetts Commissioner of Revenue could not use a Finnigan-style sales reallocation rule to include Massachusetts receipts of a P.L. 86-272 protected affiliate in the sales factor numerators of taxable members of its combined group. P.L. 86-272 prohibits a state from imposing a net income tax on a person whose in-state activities are limited to the solicitation of orders for sales of tangible personal property, where those orders are approved and filled from outside the state.

The principal reporting corporation of a combined group engaged in the business of hog production, fresh pork products, and packaged meats. Members of the group included entities that manufactured pork products, as well as related sales companies that sold the affiliated members’ products. During the years at issue (2015-17), a sales affiliate had no Massachusetts employees or property based in the state. Additionally, its employees were engaged exclusively in the solicitation of orders for tangible personal property approved and filled from outside Massachusetts. As such, the affiliate was protected from Massachusetts net income taxation under P.L. 86-272. The Commissioner audited the combined group and issued corporate excise assessments.

Although the affiliate was not taxable in Massachusetts, a Massachusetts regulation would have included the affiliate’s Massachusetts sales receipts in the sales factor numerators of taxable members of the combined group. The Board rejected that approach, holding that application of the Finnigan reallocation rule under these facts frustrated the objectives of P.L. 86-272 and violated the Supremacy Clause of the U.S. Constitution.

The Board emphasized that the term “person” in P.L. 86-272 does not mean an entire unitary group merely because one member has nexus in the state. The Board also rejected the view that P.L. 86-272 prevents only the direct taxation of a protected out-of-state entity. In the Board’s view, Massachusetts could not indirectly tax income protected by federal law by shifting the protected entity’s Massachusetts receipts into the sales factor numerators of taxable affiliates.

Smithfield Packaged Meats Corp. & Combined Affiliates v. Commissioner of Revenue, Mass. App. Tax Bd., Docket No. C344811, July 22, 2026.